When hungry investors want to make a meal of a company, they can pool their millions in something called a SPACBy Kit R. Roane
You may think that "SPACs" sound like something to keep your feet dry or the kind of gift sure to be returned. But for investors hoping to make a killing on a leap of faith, special purpose acquisition companies are hot commodities.
SPACs are publicly traded shell companies, meaning they have no business operations and exist as little more than a name until investors pump money into them. The payoff comes if a SPAC's management team is savvy enough to purchase an undervalued private company within a specific field--like shipping--and then run it successfully as a public company. In a perfect world, that private company would be bought at a fraction of what it is later valued at on the public market.
Such investment vehicles have been luring some big names. Steven Berrard, the former CEO of Blockbuster Entertainment Group, now heads a SPAC called Services Acquisition Corp. International, and Apple Computer cofounder Steve Wozniak is helping shepherd another SPAC called Acquicor Technology. A few top banks have also begun underwriting the deals, including Citibank and Deutsche Bank. The latter recently priced a 20 million-share offering for a real-estate SPAC called Cold Spring Capital, raising $120 million
In all, more than 50 SPACs filed to go public in 2005. About half of these, including Cold Spring Capital, have made it to market, raising around $1.2 billion that can be used for acquisitions. By comparison, only 11 deals went public in 2004, and those raised less than $500 million.
read more >>> this story originally appeared in the January 30, 2006 print edition of U.S. News & World Report.
You may think that "SPACs" sound like something to keep your feet dry or the kind of gift sure to be returned. But for investors hoping to make a killing on a leap of faith, special purpose acquisition companies are hot commodities.
SPACs are publicly traded shell companies, meaning they have no business operations and exist as little more than a name until investors pump money into them. The payoff comes if a SPAC's management team is savvy enough to purchase an undervalued private company within a specific field--like shipping--and then run it successfully as a public company. In a perfect world, that private company would be bought at a fraction of what it is later valued at on the public market.
Such investment vehicles have been luring some big names. Steven Berrard, the former CEO of Blockbuster Entertainment Group, now heads a SPAC called Services Acquisition Corp. International, and Apple Computer cofounder Steve Wozniak is helping shepherd another SPAC called Acquicor Technology. A few top banks have also begun underwriting the deals, including Citibank and Deutsche Bank. The latter recently priced a 20 million-share offering for a real-estate SPAC called Cold Spring Capital, raising $120 million
In all, more than 50 SPACs filed to go public in 2005. About half of these, including Cold Spring Capital, have made it to market, raising around $1.2 billion that can be used for acquisitions. By comparison, only 11 deals went public in 2004, and those raised less than $500 million.
read more >>> this story originally appeared in the January 30, 2006 print edition of U.S. News & World Report.
